2018 stock buybacks boom

South Florida firms active in expected $1 trillion trend

Buy back your own shares. If you’re a public company, it’s apparently the thing to do in 2018.

South Florida public companies including Citrix Systems, Office Depot, AutoNation, Carnival Corp., Royal Caribbean International and Norwegian Cruise Lines have all bought back or authorized repurchases of their stock this year.

They are part of $1 trillion in stock buybacks expected by year’s end, an increase of 46 percent over last year, according to a report by investment bank Goldman Sachs chief U.S. equity strategist David Kostin. He says stock repurchases will be a “key influence” on stock market growth.

South Florida companies that have repurchased their shares say they’re looking to maximize shareholder value, or are buying back stock at a discount because it is “undervalued.” Others say they’re looking to balance shareholder return with other investments, such as acquisitions or research and development.

Experts say many stock repurchases are driven by the Trump administration’s massive corporate tax cut to 21 percent from 35 percent, signed into law late last year. That measure also included an attractive reduced rate to bring foreign profits back to the United States.

The cash windfall from the tax cut and the lower repatriation rate have combined to create this “interesting phenomenon,” said Jian Cao, associate professor in accounting at Florida Atlantic University in Boca Raton, who has studied the impact of corporate tax cuts. With lots of cash on hand, some shareholders expect a better return, she said.

Stock repurchases “create a demand on the shares. There are fewer shares outstanding. That’s going to boost the share price,” Cao said.

It’s typical in an industry, she said, that “if one company is doing this, competitors try to follow.”

However, some critics say big spending on stock repurchases is providing short-term fixes — they don’t build long-term company value and don’t improve workers’ opportunities or wages.

“We did this massive tax cut

with the idea that it would trickle down, and that’s not the case,” said Nell Abernathy, vice president for research and policy at Roosevelt Institute, a New Yorkbased nonprofit that was inspired by the legacy of Franklin and Eleanor Roosevelt and is a partner to the Franklin D. Roosevelt Presidential Library and Museum in Hyde Park, N.Y.

In selling the corporate tax cut, President Donald Trump and congressional Republicans promised workers a $4,000 pay raise. Yet wages and salaries nationwide are up only 2 percent in the second quarter over a year ago, according to the U.S. Bureau of Labor Statistics.

So who most benefits from share repurchases? Corporate executives who see the value of their stockbased compensation rise, according to Katy Milani and Irene Tung, authors of a joint report, “Curbing Stock Buybacks: A Crucial Step to Raising Worker Pay and Reducing Inequality,” released July 31 by The Roosevelt Institute and the National Employment Law Project.

In South Florida, public companies are spending millions — even billions — to buy back their stock.

Nationwide auto retailer AutoNation, based in Fort Lauderdale, repurchased 1.6 million shares for $73 million at an average price of $47.30 per share during its second quarter. AutoNation still has about $264 million authorized by its board for share repurchase, its chief financial officer, Cheryl Miller, said during the company’s last earnings conference call with analysts.

Added AutoNation spokesman Marc Cannon: “We continue to drive shareholder value through opportunistic share repurchases, when our stock is trading at a discount to its intrinsic value. Since 1999, AutoNation has repurchased over 80 percent of shares outstanding at an average price below $20 per share for a total of $8.8 billion. Today, the stock is trading over $46.”

AutoNation stock has a

52-week range of $40.51 to

$62.02 in New York Stock Exchange trading.

After Miami-based Norwegian Cruise Line announced a three-year program in early August to repurchase up to $1 billion shares, its stock price rallied nearly 4 percent.

Norwegian’s buyback was a result of “our increasing confidence and conviction in the company’s business outlook and the opportunity for us to repurchase shares at a discounted valuation,” according to spokeswoman Andrea DeMarco.

Boca Raton-based Office Depot also saw an uptick in its stock after announcing in early August it would re-initiate its share repurchase program, although a good quarter for the fledgling retailer also likely contributed to the boost. Office Depot said it repurchased about 3 million shares at a total cost of $8 million during the second quarter that ended in June. The company has not responded to inquiries about its stock repurchases.

Giant cruise operator Carnival Corp. also got in the swim with a share repurchase approval of up to $1 billion in April.

“Our share repurchase program helps improve overall shareholder value, often helping to increase share price in the process, and helps to reduce the cost of capital,” said Roger Frizzell, spokesman for Miami-based Carnival.

This spring, Miamibased Royal Caribbean also approved repurchase of $1 billion of its common stock over two years. Spokesman Owen Torres simply pointed to boosting shareholder return as the reason.

Fort Lauderdale-based software company Citrix Systems said it fosters growth by spending on research and development, acquisitions, and sales and marketing initiatives. But when there is “excess” capital beyond those needs, Citrix opts to buy back stock.

Citrix repurchased 1.8 million shares in its second quarter, saying it still has about $500 million remaining under its $2 billion repurchase program authorized by its board in November 2017.

“For us, share repurchases are a good way to balance our growth investments and shareholder value,” said Citrix spokesman Eric Armstrong.